''The great mistake made by the public is paying attention to prices instead of values.'' - Charles H. Dow, a founder of Dow Jones Company and inventor of the Dow Jones industrial average.
In the investment world today, as in Mr. Dow's era of a century ago, it's still easy to look at prices instead of values. In an effort to focus more on values, the Monitor is beginning a quarterly investment column, Investment Scene. The column will present the views of a number of successful investment professionals, giving their opinions on what to buy, when to buy it, and what to look for in purchasing stocks or bonds.
Each of the investment professionals interviewed has had long-term success and has developed a strong reputation in his field. Nevertheless, the Monitor cannot guarantee the acccuracy of their predictions - or the results from them.
James Cook, a partner in Roland & Cook, at the Peachtree Center, Atlanta, has yet to have a down year since his firm started in 1977. In its best year Roland & Cook, which manages pensions and individual portfolios, has been up 26 percent. This year the $50 million it manages will be up ''in the low double digits.''
Mr. Cook dosen't see a lot of reason to invest in the stock market at this time.
''We're content to stay high and dry until more is known about the economy,'' he says. With some 80 percent of his portfolio in medium-term government securities, he believes it's now very difficult for his clients - most of whom are financially conservative - to lose money. ''I'd love to be wrong,'' he admits, ''but I don't want to lose money.'' Over the next few quarters, the money manager is convinced bonds will do better; the return on cash - in the money market funds, for example - will come down some; and stocks will meander around in the low 800s to low 900s on the Dow Jones industrial average. By investing in government securities, he figures, an investor ought to see a 15 to 20 percent annual return without any exposure to the vagaries of the stock market.
Behind this conservative investment attitude is Cook's feeling that the economy will be a lot weaker than most economists are expecting. Thus, he wants to see what the government's response to this weaker economy is before investing.
Roland & Cook portfolios are not completely out of the stock market. The stocks in them are generally of consumer nondurables, however: utilities, both phone and electric. It has invested in some regional Sunbelt companies it can follow from its Atlanta base. It has some investments in domestic oil companies but has backed away from the oil service sector. ''We don't have much emphasis on small growth (companies) at this point,'' Cook says. ''But it's an area we would like to go back to.''
His conservatism even spills over to the money market funds. At this point, he believes, his clients are better off in money market funds investing only in government securities, not higher-paying commercial paper. ''I know you lose some yield,'' he concludes, ''but you can sleep.''
For the past four years Victor Melone, senior vice-president of the Manufacturers Hanover Trust Company, has been the bank's chief investment officer, putting its common stock fund among the leaders in New York bank trust departments. Its bond fund has had similar success, and Pension and Investment Age has called it among ''the most consistent'' for the past 10 years.
Mr. Melone makes a strong case for buying long-term bonds at this point and avoiding the stock market.
''We're persuaded by a number of things,'' he says, ''that investing in long-term bonds is going to provide a good return over the next two to three years.''
Melone says the bank's reasons for buying bonds center on the economic outlook. He says the economy has slipped into a recession that will last at least through the current quarter and possibly into the first half of 1982.
''We will have four to five quarters of below-normal growth, with the normal cyclical effects,'' Melone predicts. These effects, such as dividend cuts and lower earnings, are all known to the financial markets. And since these cyclical effects have been seen before, investors should feel ''a little bit more comfortable,'' he reasons. Investors can expect to see real output falling, inventories reduced, and a rise in the unemployment rate. ''All these things should take some pressure off the bond market,'' Melone says, since with the economy slumping fewer companies will need to raise money in the bond market to fund operations.
If the financial markets are to react as he predicts, one of the key elements will be the Federal Reserve Board. The Fed must maintain a steady course once the recession hits, he says.
Melone doesn't view the US budget deficit as a potential roadblock to bond investors. Rather, he notes that as a percentage of gross national product, the budget ''is not monumental'' compared with those in other countries, ''considering it's a recessionary environment.'' Besides, he concludes, it's a deficit caused by a shortfall in revenues, not a ''pumping out of money.'' The latter type of deficit, he believes, comes back to haunt the financial markets later.
Corporate borrowing will also slow down as the recession sets in. We're already seeing cuts in corporate spending plans, he says, adding, ''There is no reason to put up a new plant when you are operating at 75 percent capacity.''
What would make him change his mind? If stocks were to fall sharply and become ''so cheap you can't stand it,'' he would become a buyer. And if the economy were stronger than expected, he might back away from bonds. But for now he thinks they are the best bet.
Walter Peters runs an investment advisory firm called the Unicorn Group from a Greenwich Village office. He also far outperformed the stock averages and other equity funds. Between 1971 and 1980 the Unicorn Group was ranked by A. G. Becker in the top 1 percent of all the funds Becker measures. In its 10-year history, Unicorn Group has had only one losing year, 1973, when the funds it managed were down 7.2 percent (the median fund was down 18.6 percent). Unicorn currently manages $100 million in the US.
Mr. Peters specializes in ''geopolitics.'' Thus, his outlook for financial markets is heavily colored by the world economic and political outlook.
This outlook is not especially bright, Peters says. He considers this period ''one of the most precarious times historically for investors.'' This leads him to counsel investors to be ''hypercautious.'' At the Unicorn Group, this means the company is taking a much shorter-term view.
Behind this anxiety is Peters's view that the world economy generally will not be very positive, and the US economy in particular has some difficult moments ahead.
Peters thinks the US economy is entering a period of high unemployment, almost no capital formation, and an imbalance between monetary and fiscal policy. He expects the economic downturn now under way to be much more severe than most people expect, ''with few companies escaping unscathed.'' The recently signed tax bill could help some companies, he points out. But it was aimed at the ailing manufacturing sector of the economy at a time when the US economy has become increasingly service-oriented.
''This is a pretty grim scenario,'' Peters concedes. What would change his mind about the outlook? If the Federal Reserve Board were to relax its grip on the monetary policy, he answers, adding, ''But I don't think it will relax it to the extent feasible to change the scenario.''
This gloomy outlook hasn't prevented Unicorn from buying some stocks or bonds. Over the short term, Peters says, investors might take advantage of a drop in the Fed funds rate and possibly another dip in the discount rate by buying high-quality bonds. Even though some ''junk bonds,'' or ones of low quality, will probably rally sharply, he advises investors to avoid them.
In the stock market, he would buy companies involved in the domestic energy business; companies with earnings continuity despite the recession, such as hospital supply companies; and high-technology companies that have developed new ways to cater to the service sector of the economy. He would also buy railroad stocks, based on the benefits they will derive from the tax bill, and defense stocks involved in conventional types of weapons.
If an investor does decide to buy stocks, he would counsel him to ''keep an eye on the exits.''
Robert Gintel is chairman of Gintel & Co., a $20 million mutual fund and brokerage house in Greenwich, Conn. For the past 61/2 years three partnerships operated by Gintel have shown cumulative returns (with dividends and interest reinvested) of 1,254 percent, 867 percent, and 432 percent. In the same time period the Dow Jones industrial average was up 225 percent and the Standard & Poor's 500, up 262 percent.
Mr. Gintel calls himself a ''contrarian,'' an investor who runs against the crowd.
And, unlike the other investment advisers interviewed who shunned the stock market, he thinks investors may be faced with a ''great buying opportunity.''
But like the other investment advisers, he says people should watch Washington to determine whether or not to commit their cash to stocks.Gintel has some favorites in the stock market.
Gintel has some favorites in the stock market. He particularly likes Zayre Corporation, which owns department stores, and H. H. Robertson Company, a Pittsburgh construction business. In both cases Gintel has large stock holdings. He owns more than 5 percent of Zayre and follows the company's fortunes closely, and he owns 78,000 shares of Robertson. He bought Zayre three years ago at $12 a share; it's now selling at $29.75. He still thinks the company is attractive at this level.
He likes Robertson, which builds office buildings and industrial plants, because ''if there is going to be a reindustrialization in this country, they will be a prime beneficiary.'' He expects Robertson will earn $5 a share this year on $650 million in sales.
Some of his other favorites, which he owns, include: Squibb, Hercules, Timken , Mohawk Data Services, Panhandle Eastern, and Boeing. All of the companies are listed on the NYSE.